EARNINGS REVIEW 4Q17 Turkey Aviation 22 February 2018 TAV Airports Bottom-line below consensus We reduce our recommendation to Hold, while keeping our target price unchanged at TRY22.90/shr. We believe the growth in passenger traffic will continue and appreciate the efforts to expand the portfolio, but the uncertainties regarding the future of company s biggest asset, Istanbul Ataturk and the potential new investments limit our target price. Tav Airports posted its 4Q17 financial results with EUR280mn revenues (flat YoY), EUR117mn EBITDA (+19% YoY), EUR151mn EBITDAR (+17% YoY) and EUR10mn net income (-44% YoY). Top-line result was slightly below the consensus conducted by the company of EUR292mn, while EBITDA margein was visibly ahead of the consensus, owing to stronger margins in major airports Istanbul Ataturk and Ankara Esenboga. However bottom-line remained both below the consensus of EUR32mn and our call of EUR34mn mainly on the back of elevated financial and translation losses, as well as relatively high tax expenses. Looking into details: During the seasonally soft quarter of 4Q, consolidated revenues were flat YoY. Flagship asset Istanbul Ataturk Airport s revenues were up by 3.5%. Strong growth in Georgian airports continued while Ankara Esenboga and Tunisian airports posted revenue contraction. All in all airport revenues grew by 2.3% YoY during 4Q17, while service revenues shrank by 8.9% YoY. EBITDA increased ahead of revenues despite headwinds. Major airports of Istanbul Ataturk and Ankara Esenboga posted low double digit growth during the quarter, with expanding margins, while Georgian airports EBITDA expanded by 22% YoY. On the other hand, EBITDAR growth remained slightly below the EBITDA growth. With strong cash generation, the net debt continued to contract and dropped to EUR586mn from EUR655mn a quarter ago and EUR760mn at FY17. The net debt to EBITDA of 1.1x as of FY17 (1.7x in FY16) suggests that the balance sheet is now ready for possible further acquisitions. The company surpassed management s somewhat conservative guidance for FY17 with the strong 4Q17 results, while their 2018 guidance is as follows: 6%-8% pax growth and 9%-11% O&D pax in Istanbul Ataturk, 10%-12% growth in total pax. 2%-4% and 5%-7% expansion in revenues and EBITDA in EUR terms, respectively. The management also foresees a double digit net income increase in EUR terms. The Board proposed to distribute TRY1.1186141/share cash dividend (c. 50% dividend payout in EUR terms) on March 28, 2018, which corresponds to a dividend yield of 5%. Please note that TAV Airports is trading at high discounts of around 55% - 65% to international peers on average 2018E and 2019E EV/EBITDA and P/E multiples. BUY Fair Value Analyst 3% upside TRY22.90 Bloomberg ticker TAVHL TI Share Price TRY22.34 Market Cap USD2.15bn/TRY8.12bn Free Float 44.33% EUR mn [4Q17] Actual Consensus Deviation Global Est Revenues 280 291-4% 292 EBITDA 117 106 11% 109 Margin 41.9% 36.4% 5.5 pps 37.1% Net Income 10 32-70% 34 Margin 3.4% 11.1% -7.7 pps 11.8% EUR mn 4Q17 4Q16 YoY 3Q17 QoQ Revenues 280 282 0% 346-19% EBITDA 117 99 19% 193-39% Margin 41.9% 35.0% 6.8 pps 55.7% -13.8 pps Net Income 10 17-44% 105-91% Margin 3.4% 6.1% -2.7 pps 30.3% -27 pps Performance 1M 3M 6M 12M Absolute 1.5 21.4 6.7 49.9 Relative 0.5 9.9-0.4 14.7 Relative $ 1.4 26.8-1.0 43.4 Evren Gezer +90 850 201 94 82 evreng@global.com.tr Global Securities Research contact for general inquiry +90 212 244 55 66 research@global.com.tr www.global.com.tr Yesilce Mah. Eski Buyukdere Cad. No: 65 Kat: 1 34418 Istanbul Turkey Global Menkul Degerler
Exhibit 1 Publication schedule Date Apr 2018 Source: Public disclosure platform Publication 1Q18 Earnings release Exhibit 2 Recommendation history 04.06.2009 (Initiation date) Rating Target Price Prev. Day's close Upside 30.10.2017 Buy 22.90 18.73 22.3% 14.06.2017 Buy 21.10 18.14 16.3% 20.02.2017 Reduce 14.75 15.11-2.4% 28.07.2016 Hold 12.40 10.77 15.1% 03.05.2016 Hold 18.90 15.15 24.8% 30.10.2017 Buy 22.90 18.73 22.3% Source: Global Securities Exhibit 3 Coverage universe recommendation overview Buy Hold Reduce Sell U/R Universe 20 19 1 1 0 Universe % 49% 46% 2% 2% 0% Source: Global Securities Page 2 of 5
Date of completion of this report: 22.02.2018 09:00 UTC+3 Date of email-distribution of this report: 22.02.2018 09:05 UTC+3 Explanation of Rating System 12-MONTH RATING DEFINITION BUY: Buy stocks are expected to have a total return of at least 15% and are the most attractive stocks in our coverage universe on a 12- month horizon. HOLD: Hold stocks are expected to deliver a positive total return of up to 15% within a 12-month period. REDUCE: Reduce stocks are expected to achieve a negative total return up to -10% within a 12-month period. SELL: Sell stocks are expected to post a negative total return of more than -10% within a 12-month period. ANALYST CERTIFICATION I, Evren Gezer, hereby certify that the views expressed in this research report accurately reflect my personal views about the market and, in conjunction with the named analysts, the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report. IMPORTANT DISCLOSURE INFORMATION This material was produced by Global Menkul Değerler A.Ş. ( GMD ) or its Affiliates, solely for information purposes and for the use of the recipient. It is not to be reproduced under any circumstances and is not to be copied or made available to any person other than the recipient. It is distributed in the world by GMD or an authorised affiliate of GMD (such entities and any other entity, directly or indirectly, controlled by GMD, the Affiliates ). This document does not constitute an offer of, or an invitation by or on behalf of GMD or its Affiliates or any other company to any person, to buy or sell any security. The information contained herein has been obtained from published information and other sources which GMD or its Affiliates consider to be reliable. None of GMD or its Affiliates accepts any liability or responsibility whatsoever for the accuracy or completeness of any such information. All estimates, expressions of opinion and other subjective judgments contained herein are made as of the date of this document. Emerging securities markets may be subject to risks significantly higher than more established markets. In particular, the political and economic environment, company practices and market prices and volumes may be subject to significant variations. The ability to assess such risks may also be limited due to significantly lower information quantity and quality. By accepting this document, you agree to be bound by all the foregoing provisions. GMD or its Affiliates have not recently been the beneficial owners of 1% or more of the securities mentioned in this report; GMD or its affiliates have not managed or co-managed a public offering of these securities, or received compensation for investment banking services from the issuer of these securities in the past 12 months and do not expect to receive compensation for investment banking services from the issuer of these securities within the next three months. However, one or more of GMD or its Affiliates may, from time to time, have a long or short position in any of the securities mentioned herein and may buy or sell those securities or options thereon either on their own account or on behalf of their clients. GMD or its Affiliates may, to the extent permitted by law, act upon or use the above material or the conclusions stated above or the research or analysis on which they are based before the material is published to recipients and from time to time provide investment banking, investment management or other services for or solicit to seek to obtain investment banking, or other securities business from, any entity referred to in this report. Page 3 of 5
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